News: Iran Economy

Why Foreign Investors Avoid Iran’s Market?

Published on 12 June 2018.

By Staff Writer

While Iran’s economy desperately needs macro investments, the official figures show that even the 2015 nuclear deal, aka JCPOA, has failed to pump necessary capital into the country’s economic arteries.

Meanwhile, the consequences of the US withdrawal from the deal will make it even more difficult for the Iranian regime to absorb foreign investors.

Regime officials have repeatedly spoken of absorbing foreign capital as well as the necessary technology to renovate the country’s outdated oil and gas industry.

In addition to an outdated oil and gas industry, it would also be impossible for Iran to exploit many of its oil and natural gas fields without taking advantage of foreign technology and capital.

The nuclear deal was supposed to pave the way for absorbing foreign investments by lifting sanctions and reconnecting Iran to the SWIFT network.

While Germany had high hopes of increasing its trade volume with Iran to more than 10 billion Euros, and French Total, among other big international oil companies, had been planning to turn into a key player in Iran’s oil and gas industry, the official figures released by regime officials give a totally different picture.

Absorbing only $5 billion in foreign investment

In an interview with state-run Fars news agency on June 9, 2018, regime’s Deputy Economy Minister ‘Mohammad Khazaei’ revealed that only $5 billion foreign investment has been made in Iran in 2017. The Deputy Economy Minister even went on to say that the figure was 45 percent higher than the investment made in a previous year.

What Khazaei refers to as Rouhani government’s economic achievement in 2016 and 2017, the foreign investment figures however suggest that regime’s policies to absorb foreign capital have practically failed, as a foreign investment of only $3 billion in 2016, as announced by Khazaei, shows that foreign investors are unwilling to enter Iran’s market.

US withdrawal from the JCPOA

It should be pointed out here that absorbing three and five billion dollars in 2016 and 2017, respectively, took place while US withdrawal from the nuclear deal was still not on the table.

With the United States pulling out of the nuclear deal nearly a month ago, the consequences could be clearly seen as big oil companies, refineries and car manufacturers have already decided to leave Iran’s market.

A SWIFT solution

Being disconnected from the SWIFT financial network was one of the major problems the Iranian regime was faced with during 2012-2016, as it not only made it difficult for regime’s financial transactions related to its export and import activities, but it also limited regime’s access to its own financial resources across the world.

One of the consequences of Trump’s reemploying sanctions on the Iranian regime would be that regime’s financial links with the global banking system will once again be cut off, something that’s going to happen when Trump administration’s 180-day deadline expires on November 4, 2018.

In his interview with state-run Fars news agency, Mohammad Khazaei has suggested that Europe determines a number of banks for resolving the financial transaction issues following the re-imposition of US sanctions. This, however, could not be done from a financial point of view, first because the European banks are themselves part of the SWIFT network, and thus they will practically have no possibility to continue working with their Iranian counterparts in case Iranian banks are kicked out of the network.

Besides, the United States has threatened to punish companies and banks that keep trading or cooperating with the Iranian regime, a punishment that would involve heavy financial fines and cutting access to the United States’ financial system as well.

Under such circumstances, it’s not conceivable that European banks are willing to take the risk of doing financial transactions with the Iranian regime.

So, it’s quite predictable that it would be more difficult than ever for the Iranian regime to absorb foreign capital with the sanctions re-imposed and regime’s banks once again disconnected from the international financial network.